Council of the Law Society of NSW v Healey

[2013] NSWADT 173

Administrative Decisions Tribunal

New South Wales

Medium Neutral Citation:

Council of the Law Society of NSW v Healey [2013] NSWADT 173

Hearing dates:

6 May 2013

Decision date:

02 August 2013

Jurisdiction:

Legal Services Division

Before:

D Patten, Deputy President
N Isenberg, Judicial Member
E Hayes, Non-Judicial Member

Decision:

1. The application should be dismissed.

2. Each party has leave to make a submission regarding costs within 14 days, the other party to reply within a further 14 days. Thereafter the matter of costs to be decided on the papers. In the event no submission as to costs is made there will be no order as to costs.

Catchwords:

Failure to make superannuation payments- no obligation proved-in circumstances no misconduct

Legislation Cited:

Legal Profession Act 2004
Superannuation Guarantee (Administration) Act 1992
Superannuation Guarantee Charge Act 1992 (Cwth)

Cases Cited:

Allinson v General Council for Medical Education and Registration [1894] 1 QB 750
Roy Morgan Research Pty Ltd v Commissioner of Taxation [2011] 244 CLR 97

Category:

Principal judgment

Parties:

Council of the Law Society of NSW (Applicant)
Katarina Healey (Respondent)

Representation:

Counsel
C Webster SC (Applicant)
T Lynch (Respondent)
Council of the Law Society of NSW (Applicant)
T A Williams (Respondent)

File Number(s):

122021

REASONS FOR DECISION

1. The Law Society's Amended Application in this matter commenced :

Orders sought

1) That the Solicitor's name be removed from the roll.

2) That the Solicitor pay the costs of and incidental to the proceedings

3) Such other order as to the Tribunal seems fit.

Grounds for Application (including particulars)

Katrina Healey(nee Muc) ("the Solicitor") is guilty of professional misconduct in that the Solicitor delayed in paying superannuation entitlements of employees of practices of which she was a principal or sole principal for the following periods:

a) the 2001, 2002, 2003, 2004, 2005 and 2006, financial years;

b) In respect of the 2007 financial year, the quarters ending 30 September 2006, 31 December 2006 and 31 March 2007.

1. There followed what were euphemistically described as "Particulars" comprising some 31 numbered paragraphs. Many of the paragraphs were uncontroversial and irrelevant to any matter, which could possibly be at issue in these proceedings. What the particulars failed to do, with one possible exception, is identify a statutory, ethical or contractual obligation of the Solicitor, breach of which, at least arguably, could constitute professional misconduct.

1. The exception or possible exception is contained in para 10 :

The Solicitor intentionally did not pay all employees' superannuation entitlements as part of a strategy to deal with ongoing disputes with ATO regarding income tax liabilities for the financial years 2000, 2001 and 2002, claimed to result in credits due on her income tax account.

1. Although it is true that at relevant times the Solicitor was in dispute with the Commissioner of Taxation in relation to income tax matters the particular seems to imply that in some unexplained way she delayed making superannuation payments in order to gain a personal advantage in respect of her income tax. There was no evidence to support a serious finding to this effect and we reject any suggestion of impropriety by the Solicitor in this regard.

1. For the most part the underlying facts relied upon by the applicant were not in dispute. They may be summarised as follows :

• At various times between 1st January 1998 and 30 June 2007 the Solicitor was a principal or the principal of a number of legal practices all of which were located in and about the metropolitan area of Sydney
• The practices had employees
• On 11 April 2005 the Australian Taxation Office (ATO) issued the Solicitor with Default Superannuation Guarantee Charge (SGC) assessments of superannuation shortfalls in relation to 32 employees for the 2001 and 2002 financial years.
• The shortfalls were $43197. 04 and $49,539.20 respectively for the two years.
• On 10 June 2005 the Solicitor lodged objection to the SGC assessments.
• On 3rd October 2006 an accountant retained by the Solicitor completed a report in relation to employees superannuation shortfalls.
• On 2 February 2007 the Solicitor completed SGC statements disclosing unpaid superannuation totalling $10766.37 plus interest and administration costs. Those sums were subsequently paid.
• On 10 July 2007 the Solicitor completed SGC statements in respect of an employee revealing a shortfall for the 2002 financial year of $1930.58 and for the 2003 financial year of $432. The statements were accompanied by cheques in payment of the shortfalls.
• On 12 July 2007 the Solicitor completed SGC statements in respect of 2 of her law practices disclosing unpaid superannuation totalling $4194.61 plus interest and administrative costs for 2007(third quarter).
• On 3 September 2008 the Australian Taxation office issued amended SGC assessments for the 2001 and 2002 years reducing the amounts payable. As a consequence the Solicitors account became in credit
• On 20 March 2009 the Solicitor completed SGC statements for the 2003 year the 2004 year the first second and third quarters of the 2005 year and the first and second quarters of 2007. These statements disclosed unpaid superannuation totalling $43837.61 plus interest and administrative costs.
• With these statements the Solicitor paid $71545.93
• On 1 May 2009 the ATO issued amended SGC assessments for the 2003 financial year and the first and second quarters of 2006.
• As at 11 March 2010 the Solicitors SGC account was $10768.38 in credit.

1. Counsel for the solicitor read her affidavit of 20 March 2013. After reciting that she was admitted to practice on 30 June 1989, she detailed her somewhat complicated involvement in a number of separate practices which at various times constituted the "G A Healey Group".

1. In relation to accounting matters the affidavit deposed :

20. In all cases, the same accounting procedures, protocols and software were used for accounting matters including taxation matters. However, there were different staff members having responsibility for the conduct of the accounting matters including taxation reporting and payment and there was some variation in practices relating to payrolls and staff benefits. At relevant times, there were basically two (2) book-keepers who undertook those duties across the range of the various practices. Ms Selvi Ilango used the Locus system for most accounting functions and the Genius payroll system for payroll and staff benefits. Ms Adda Vasquez used the Locus system but relied on excel spreadsheets for a number of the functions including payroll and staff benefits.

21. While I took a close personal interest in ensuring that the trust account was at all times properly maintained, as did my husband Mr Greg Healey, I had little, if any, personal involvement in other accounting matters and delegated those tasks to the responsible staff members. I have no accounting background and that seemed to me an appropriate course to adopt. In relation to all such matters I have always relied upon staff for the day to day tasks, and upon my external accountants for general guidance and supervision.

1. The affidavit went on to relate her dispute with the ATO over income tax which commenced in 2003 and which she said "had nothing to do with Superannuation payments". She was ultimately substantially successful in her objections although in the meantime the ATO commenced legal proceedings and obtained a judgment against her.

1. In relation to "Superannuation Remittance" the solicitor deposed :

30. The first I became aware of any issues relating to superannuation was in about 2005 when I received default assessments.

31. I caused enquiries to be made from which I became aware that there were outstanding superannuation remittance obligations.

32. I engaged Mr Robert Prior, a forensic accountant, to conduct appropriate enquiries, and to report to permit the preparation and lodgement of SGIC returns. It appeared from my enquiries that these tasks had not been properly attended to by either of the former relevant employed bookeeper and financial controller, both of whom had resigned in 2006, and there had been failures to meet superannuation obligations over an extended period. However Mr Prior identified a number of errors in the default assessments.

33. Mr Prior also communicated with the Australia Taxation Office on my behalf to try to resolve the assessment errors.

34. In 2005 the Deputy Commissioner of Taxation commenced debt recovery proceedings in relation to the default assessments.

35. Again I defended those proceedings unsuccessfully. The failure of my defence was again the finding that the issue of an assessment conclusively proves the debt under s75(1) of the Superannuation Guarantee (Administration) Act 1992, which is in identical terms to s177 (1) of the Income Tax Assessment Act.

36. In respect of each of the District Court proceedings (decided on the same evidentiary principle) and the Court of Appeal proceedings, costs were awarded against me. In total I paid the sum of $220,000.00 to the Australian Taxation Office being the agreed sum for costs on all of the proceedings.

1. The affidavit continued to give what the solicitor described as an "overview" of her dealings with the ATO especially in respect of staff superannuation matters. Relevantly to the issues before this Tribunal she said :

37.From the time I first became aware that there had been a problem in relation to remittance of superannuation payments, I directed my staff to ensure that they were made in a timely fashion. I engaged new accounting staff in 2006.

38.The effect of that is that payments are remitted direct to the superannuation fund, not to the Australian Taxation Office. Accordingly, the Australian Taxation Office has no record of any payments received by the various superannuation funds unless it makes enquiry in relation to specific employees.

39.I made payments to the Australian Taxation Office for the purpose of clearing the outstanding obligations in relation to the superannuation guarantee assessments.

40.1 continued with my objections in relation to the assessments of income tax, the default superannuation guarantee assessments and other matters, and ultimately had a measure of success in relation to the primary debt but was not able to persuade the Commissioner to waive the penalties in full, attributable to the earlier incorrect assessment.

41.The upshot was that I was entitled to a credit both in relation to income tax and superannuation.

42.In addition to the payments being made to the various superannuation funds, I also made substantial payments to the Australian Taxation Office against the default assessments in relation to superannuation guarantee payments.

43.However, the Australian Taxation Office did not apply all such payments by payment to the relevant superannuation funds for the relevant employees to whom those payments related, or if it did, it did not do so in a timely fashion.

44.Some payments made for superannuation upon receipt by the Australian Taxation Office were applied on my integrated running account to my outstanding income tax obligations. In other cases they were held for periods of time without being allocated, or passed on to the fund.

45.The sum of $71,545.93 was paid on 20 March 2009 by cheque to the Australian Taxation Office in respect of superannuation obligations. However based on the reconciliation prepared by my accountant, $42,291.96 was allocated to other accounts.

46.As a result of the reviews of my obligations, and reductions on the original assessments, I was entitled to a credit of $130,168.49 from the money which I had paid.

47.The Australian Taxation Office satisfied the balance of what it regarded was the outstanding amount on the superannuation account from that sum on or about 28 March 2009.

...

49.As the default assessments (as amended) ultimately relied upon by the Australian Taxation Office apparently do not take account of payments direct to the external superannuation funds (and to the best of my knowledge, information and belief based upon enquiry of the relevant staff) paid in a timely fashion, the ultimate result is that in addition to all of the penalties which I have paid, the entitlements have been overpaid, I believe, by something of the order of $70,000.00. I am not seeking to make any challenge to that overpayment given that the ultimate beneficiaries are employees. I no longer have the energy or the resources to continue to fight the Australian Taxation Office and I am pessimistic as to my prospects of recovery even if all of the objections available to me are upheld.

1. In the balance of the Affidavit the solicitor admitted that she had paid insufficient attention to administrative duties and responsibilities but denied that she had ever given a direction to withhold or delay any payment of superannuation and listed a number of medical and other personal factors which bore upon her in the relevant period.

1. The Commonwealth Parliament enacted legislation in 1992 designed to achieve the policy that all employers pay on behalf of their employees a specified proportion of their salaries to a superannuation fund. The principal statute to achieve this end was the Superannuation Guarantee (Administration) Act 1992 (Cwth) (the Administration Act). It was supplemented by the Superannuation Guarantee Charge Act 1992 (Cwth) (the Charge Act).

1. The provisions of the Administration Act were complex and have been amended from time to time. However the scheme established by the statute has remained constant and was explained by the High Court in Roy Morgan Research Pty Ltd v Commissioner of Taxation [2011] 244 CLR 97. The issue in that case was whether the charge imposed by the legislation constituted a tax within s51(ii) of the Constitution.

1. In the High Court the joint judgment of French C J, Gummow, Hayne Crennan, Kiefel and Bell JJ commenced

In Roy Morgan Research Pty Ltd v Federal Commissioner of Taxation, the Full Court of the Federal Court (Keane CJ, Sundberg and Kenny JJ), on an "appeal" under s44(1) of the Administrative Appeals Tribunal Act 1975 (Cth), upheld the validity of the Superannuation Guarantee (Administration) Act 1992 (Cth) (the Administration Act) and the Superannuation Guarantee Charge Act 1992 (Cth) (the Charge Act).

2. By special leave, the appellant appeals to this Court against that decision. The appellant submits, inter alia, that the only available head of power to support the legislation is s51(ii) of the Constitution, and that the superannuation guarantee charge (the Charge) provided for in the legislation is not a tax because it is not imposed for "public purposes". For the reasons which follow, the constitutional challenge to the Administration Act and the Charge Act in this Court fails and the appeal should be dismissed.

The legislation

3. Broadly speaking, the effect of the legislation under challenge is that if, as specified in the Administration Act, an employer fails to provide to all employees a prescribed minimum level of superannuation then any shortfall represented by failure to meet that minimum level in full, becomes the Charge. This impost is levied on the employer by the Charge Act. The amount of the Charge is a debt due to the Commonwealth and payable to the respondent, the Commissioner of Taxation: Taxation Administration Act 1953 (Cth), Sch 1, s 255-5. The Charge includes a component for interest and an administration cost. The result is to supply an incentive to employers to make contributions to superannuation for their employees without incurring a liability to

the Commissioner for the Charge.

4. The revenue raised by the Charge is dealt with as "public money" to which Pt 3 (ss8-16) and Div 2 of Pt 4)ss26-27) of the Financial management and Accountability Act 1997 (Cth) apply. This reflects the operation of ss81 and 83 of the Constitution. Section 81 states:

"All revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution".

Section 83 provides that money is not to be drawn "from the Treasury of the Commonwealth except under appropriation made by law"

5. As the Full Court noted, in providing separately for the Charge Act and the Administration Act, the Parliament followed the well established procedure to comply with the requirement of s 55 of the Constitution that laws imposing taxation shall deal only with the imposition of taxation. Thus the Charge Act does no more than impose what is said to be a tax and fix the rate. It is the Administration Act which deals with the incidence, assessment and collection of the Charge. Section 3 of the Charge Act states that the Administration Act is incorporated and to be read as one with the Charge Act.

1. Heydon J included in his judgment the following pertinent paragraphs :

53. There is no general duty on private employers to pay

superannuation contributions to superannuation funds for the benefit of their employees. But particular obligations to pay superannuation contributions can arise in various ways. They may be created by an award or certified agreement. They may be created by contract. This appeal concerns the legislative validity of an indirect method of ensuring the payment of superannuation contributions.

The legislation

54. Sections 5 and 6 of the Superannuation Guarantee Charge Act 1992 (Cth) impose a superannuation guarantee charge on employers. It is calculated by reference to an employer's "superannuation guarantee shortfall": Superannuation Guarantee (Administration) Act 1992 (Cth), s 17. That shortfall is the difference between 9 per cent of a given employee's total salary or wages for a quarter and what the employer contributed to a retirement savings account or certain types of superannuation fund for the employee's benefit, plus a nominal interest component and an administration component. The function of the interest component is to compensate for fund earnings foregone by the failure to pay the 9 per cent. The function of the administrative component is to recover expenses associated with administering the superannuation guarantee charge. The legislation creates an obligation on the employer to pay that charge to the Commissioner of Taxation which is enforceable as a debt due to the Commonwealth. The superannuation guarantee charge is to be paid into the Consolidated Revenue Fund. A similar sum (but without the administration component) is then to be paid out to a superannuation fund for the benefit of the relevant employee.

57. The superannuation guarantee charge provides an incentive to

employers to make superannuation contributions at the rate of 9 per cent of employees' wages. It ensures that in relation to the employees of employers who fail to do so there will be payments into approved superannuation funds equivalent to those which the employers did not make. There are significant factors influencing employers to make superannuation contributions directly to superannuation funds for their employees' benefit rather than pay the superannuation guarantee charge. Direct superannuation contributions are tax deductible; payments of the superannuation guarantee charge are not. Payments of direct superannuation contributions avoid the nominal interest component and the administration component of the superannuation guarantee shortfall. And in other respects the superannuation guarantee charge may be higher than the corresponding direct superannuation contribution. In a perfect world, no superannuation guarantee charge would be levied at all. But it tends to persuade employers to make direct superannuation contributions. This achieves public purposes quite independently of any revenue collected through it. Those public purposes centre on the encouragement of employers to contribute to superannuation funds so as to meet the needs of aged or infirm employees and to reduce the pension burdens which would otherwise have to be funded by the government.

1. We observe that in this case there was no evidence that the Solicitor had an obligation to make superannuation contributions for her employees by virtue of a contract or award or a certified agreement.

1. Mr Lynch counsel for the Solicitor after submitting, correctly, that there was no evidence that her conduct was part of a deliberate strategy to assist her own dispute with the Commissioner of Taxation in relation to income tax addressed what he categorised as a "fundamental deficiency" in the Applicant's case. He submitted that the allegation that the Solicitor delayed in paying superannuation entitlements assumed the right of the employee to such entitlements whereas so he submitted there was no such right. There seems to us to be much force in that submission having regard to what was said in Roy Morgan Research.

1. Ms Webster of Senior Counsel for the Applicant contended on the other hand that the scheme of the Administration Act and of the Charge Act, is to establish an indirect (and effective) method of ensuring payment of such implied obligation. This of course is true but as it seems to us the serious finding of professional misconduct or even unsatisfactory professional conduct requires proof at least of breach of a statutory contractual or ethical obligation. In our view accepting Mr Lynch's submission no such breach was proved here. In the absence of an obligation such as that referred to by Heydon J the statute left an employer the right (albeit at considerable disadvantage) to elect not to make superannuation payments but instead accept the liability to pay superannuation guarantee charges to the Commissioner of Taxation. We would uphold Mr Lynch's submission that the proved conduct of the Solicitor does not establish that she "delayed in paying superannuation entitlements of employees" as alleged.

1. In case we are wrong in that conclusion we proceed to consider whether a finding of professional misconduct should be made on the assumption that there was an implied obligation, as Ms Webster submitted, upon the Solicitor to make superannuation contributions and she failed to honour that obligation over a period. If there were an implied obligation it seems to have been established that over a period the Solicitor failed to perform it.

1. The test for professional misconduct is as propounded in Allinson v General Council for Medical Education and Registration [1894] 1 QB 750: "Something.... which would be reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency".

1. According to the unchallenged evidence in this case the solicitor employed staff who were charged with ensuring that obligations to her employees were duly performed. She first became aware that this may not have been the case in 2005 when she received default assessments from the Commissioner of Taxation. Thereafter she engaged a forensic accountant in effect to conduct an audit. In light of his report she made payments which have resulted in her establishing an overpayment of some $70000. It seems to have been the ATO rather than the Solicitor which mingled her obligation on the one hand to pay income tax and on the other hand to pay superannuation guarantee charges. No doubt the ATO was entitled to do this and we imply no criticism.

1. While with hindsight the solicitor could have been more diligent in complying with financial obligations, the Administration Act was complex and there is no suggestion of dishonesty or of the Solicitor intentionally furthering her own interests at the expense of her employees. Moreover as it seems there was a genuine basis for her to dispute the ATO assessments. In all those circumstances in our judgment the conduct of the solicitor would not reasonably be regarded by her professional colleagues of good repute and competency as disgraceful or dishonourable. Nor in our view does the Solicitor's conduct amount to unsatisfactory professional conduct. We should add that while we do not doubt that failure to pay employees their proper entitlements is capable of constituting professional misconduct, in none of the cases to which we have been referred, was that circumstance, inadvertently committed, alone the foundation of a finding of professional misconduct.

1. The application should be dismissed. Each party has leave to make a submission regarding costs within 14 days, the other party to reply within a further 14 days. Thereafter the matter of costs to be decided on the papers. In the event no submission as to costs is made there will be no order as to costs.

I hereby certify that this is a true and accurate record of the reasons for decision of the Administrative Decisions Tribunal.

Registrar

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Decision last updated: 02 August 2013